BILL NUMBER: AB 2708	CHAPTERED  09/30/00

	CHAPTER   1036
	FILED WITH SECRETARY OF STATE   SEPTEMBER 30, 2000
	APPROVED BY GOVERNOR   SEPTEMBER 30, 2000
	PASSED THE SENATE   AUGUST 18, 2000
	PASSED THE ASSEMBLY   MAY 31, 2000
	AMENDED IN ASSEMBLY   APRIL 3, 2000

INTRODUCED BY   Assembly Member Wesson

                        FEBRUARY 25, 2000

   An act to amend Sections 16500, 16501, 16600, and 53635 of the
Government Code, relating to government funds.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2708, Wesson.  State deposits.
   Existing law governs the deposit of funds belonging to or in the
custody of the state and local agencies in eligible banks, savings
and loans associations, and credit unions.
   This bill would revise the definitions of an eligible bank,
savings and loan association, and credit union to include receipt of
an overall rating of not less than "satisfactory" in the financial
institution's most recent evaluation by the appropriate federal
financial supervisory agency of its record of meeting the credit
needs of the state's communities pursuant to federal law.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 16500 of the Government Code is amended to
read:
   16500.  As used in this chapter, "eligible bank" means a state or
national bank located in this state, selected by the Treasurer for
the safekeeping of money belonging to or in the custody of the state,
that has received an overall rating of not less than "satisfactory"
in its most recent evaluation by the appropriate federal financial
supervisory agency of the bank's record of meeting the credit needs
of the state's communities, including low- and moderate-income
neighborhoods, pursuant to Section 2906 of Title 12 of the United
States Code.  An eligible bank is eligible to receive deposits only
to the extent that it furnishes the security required by this
chapter.
  SEC. 2.  Section 16501 of the Government Code is amended to read:
   16501.  Under the conditions as the Treasurer with the approval of
the Director of Finance may establish, the Treasurer may deposit
money in banks outside this state when the banks are fiscal agents of
the state or custodians of securities owned by the state, if the
banks have an overall rating of not less than "satisfactory" in their
most recent evaluation by the appropriate federal financial
supervisory agency of the banks' record of meeting the credit needs
of the communities in which the bank is located, including low- and
moderate-income neighborhoods, pursuant to Section 2906 of Title 12
of the United States Code.
  SEC. 3.  Section 16600 of the Government Code is amended to read:
   16600.  (a) As used in this chapter, the following definitions
shall apply:
   (1) "Eligible savings and loan association" means a state or
federal savings association, as defined in Section 5102 of the
Financial Code, located in this state, insured by the Federal Savings
and Loan Insurance Corporation, and selected by the Treasurer for
the safekeeping of money belonging to or in the custody of the state.
  An "eligible savings and loan association" must have received an
overall rating of not less than "satisfactory" in its most recent
evaluation by the appropriate federal financial supervisory agency of
the association's record of meeting the credit needs of the state's
communities, including low- and moderate-income neighborhoods,
pursuant to Section 2906 of Title 12 of the United States Code.
   (2) "Eligible credit union" means a state or federal credit union
located in this state, insured by the National Credit Union
Administration, and selected by the Treasurer for the safekeeping of
money belonging to or in the custody of the state.
   (b) An eligible savings and loan association or credit union is
eligible to receive deposits only to the extent it furnishes the
security required by this chapter.
  SEC. 3.  Section 53635 of the Government Code is amended to read:
   53635.  As far as possible, all money belonging to, or in the
custody of, a local agency, including money paid to the treasurer or
other official to pay the principal, interest, or penalties of bonds,
shall be deposited for safekeeping in state or national banks,
savings associations or federal associations, credit unions, or
federally insured industrial loan companies in this state selected by
the treasurer or other official having the legal custody of the
money; or, unless otherwise directed by the legislative body pursuant
to Section 53601, may be invested in the investments set forth
below.  To be eligible to receive local agency money, a bank, savings
association, federal association, or federally insured industrial
loan company shall have received an overall rating of not less than
"satisfactory" in its most recent evaluation by the appropriate
federal financial supervisorial agency of its record of meeting the
credit needs of California's communities, including low-and
moderate-income neighborhoods, pursuant to Section 2906 of Title 12
of the United States Code.  A local agency purchasing or obtaining
any securities described in this section, in a negotiable, bearer,
registered, or nonregistered format, shall require delivery of all
the securities to the local agency, including those purchased for the
agency by financial advisers, consultants, or managers using the
agency's funds, by book-entry, physical delivery, or by third-party
custodial agreement.  The transfer of securities to the counterparty
bank's customer book-entry account may be used for book-entry
delivery.  For purposes of this section, "counterparty" means the
other party to the transaction.  A counterparty bank's trust
department or separate safekeeping department may be used for the
physical delivery of the security if the security is held in the name
of the local agency.  Where this section specifies a percentage
limitation for a particular category of investment, that percentage
is applicable only at the date of purchase.
   (a) Bonds issued by the local agency, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency or by a department,
board, agency, or authority of the local agency.
   (b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
   (c) Registered state warrants or treasury notes or bonds of this
state, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the
state or by a department, board, agency, or authority of the state.
   (d) Bonds, notes, warrants, or other evidences of indebtedness of
any local agency within this state, including bonds payable solely
out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency, or by a department,
board, agency, or authority of the local agency.
   (e) Obligations issued by banks for cooperatives, federal land
banks, federal intermediate credit banks, federal home loan banks,
the Federal Home Loan Bank, the Tennessee Valley Authority, or in
obligations, participations, or other instruments of, or issued by,
or fully guaranteed as to principal and interest by, the Federal
National Mortgage Association; or in guaranteed portions of Small
Business Administration notes; or in obligations, participations, or
other instruments of, or issued by, a federal agency or a United
States government-sponsored enterprise.
   (f) Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as bankers acceptances.  Purchases
of bankers acceptances may not exceed 270 days maturity or 40 percent
of the agency's surplus funds which may be invested pursuant to this
section.  However, no more than 30 percent of the agency's surplus
funds may be invested in the bankers acceptances of any one
commercial bank pursuant to this section.
   This subdivision does not preclude a municipal utility district
from investing any surplus money in its treasury in any manner
authorized by the Municipal Utility District Act, Division 6
(commencing with Section 11501) of the Public Utilities Code.
   (g) Commercial paper of "prime" quality of the highest ranking or
of the highest letter and numerical rating as provided for by Moody's
Investors Service, Inc., or Standard and Poor's Corporation.
Eligible paper is further limited to issuing corporations that are
organized and operating within the United States and having total
assets in excess of five hundred million dollars ($500,000,000) and
having an "A" or higher rating for the issuer's debt, other than
commercial paper, if any, as provided for by Moody's Investors
Service, Inc., or Standard and Poor's Corporation.  Purchases of
eligible commercial paper may not exceed 180 days maturity nor
represent more than 10 percent of the outstanding paper of an issuing
corporation.  Purchases of commercial paper may not exceed 15
percent of the agency's surplus money which may be invested pursuant
to this section.  An additional 15 percent, or a total of 30 percent
of the agency's money or money in its custody, may be invested
pursuant to this subdivision.  The additional 15 percent may be so
invested only if the dollar-weighted average maturity of the entire
amount does not exceed 31 days.  "Dollar-weighted average maturity"
means the sum of the amount of each outstanding commercial paper
investment multiplied by the number of days to maturity, divided by
the total amount of outstanding commercial paper.
   (h) Negotiable certificates of deposit issued by a nationally or
state-chartered bank or a savings association or federal association
or a state or federal credit union or by a state-licensed branch of a
foreign bank.  Purchases of negotiable certificates of deposit may
not exceed 30 percent of the agency's surplus money which may be
invested pursuant to this section.  For purposes of this section,
negotiable certificates of deposit do not come within Article 2
(commencing with Section 53630) of Chapter 4 of Part 1 of Division 2
of Title 5, except that the amount so invested shall be subject to
the limitations of Section 53638.  For purposes of this section, the
legislative body of a local agency and the treasurer or other
official of the local agency having legal custody of the money are
prohibited from depositing or investing local agency funds, or funds
in the custody of the local agency, in negotiable certificates of
deposit issued by a state or federal credit union if a member of the
legislative body of the local agency, or an employee of the
administrative officer, manager's office, budget office,
auditor-controller's office, or treasurer's office of the local
agency also serves on the board of directors, or any committee
appointed by the board of directors, or the credit committee or
supervisory committee of the state or federal credit union issuing
the negotiable certificates of deposit.
   (i) (1) Investments in repurchase agreements or reverse repurchase
agreements, or securities lending agreements of any securities
authorized by this section, so long as the agreements are subject to
this subdivision, including the delivery requirements specified in
this section.
   (2) Investments in repurchase agreements or securities lending
agreements may be made, on any investment authorized in this section,
when the term of the agreement does not exceed one year.  The market
value of securities that underlay a repurchase agreement shall be
valued at 102 percent or greater of the funds borrowed against those
securities and the value shall be adjusted no less than quarterly.
Since the market value of the underlying securities is subject to
daily market fluctuations, the investments in repurchase agreements
shall be in compliance if the value of the underlying securities is
brought back up to 102 percent no later than the next business day.
   (3) Reverse repurchase agreements may be utilized only when either
of the following conditions are met:
   (A) The security was owned or specifically committed to purchase,
by the local agency, prior to repurchase agreement on December 31,
1994, and was sold using a reverse repurchase agreement or securities
lending agreement on December 31, 1994.
   (B) The security to be sold on reverse repurchase agreement or
securities lending agreement has been owned and fully paid for by the
local agency for a minimum of 30 days prior to sale; the total of
all reverse repurchase agreements and securities lending agreements
on investments owned by the local agency not purchased or committed
to purchase, prior to December 31, 1994, does not exceed 20 percent
of the base value of the portfolio; and the agreement does not exceed
a term of 92 days, unless the agreement includes a written codicil
guaranteeing a minimum earning or spread for the entire period
between the sale of a security using a reverse repurchase agreement
or securities lending agreement and the final maturity date of the
same security.
   (4) After December 31, 1994, a reverse repurchase agreement or
securities lending agreement may not be entered into with securities
not sold on a reverse repurchase agreement or securities lending
agreement and purchased, or committed to purchase, prior to that
date, as a means of financing or paying for the security sold on a
reverse repurchase agreement or securities lending agreement, but may
only be entered into with securities owned and previously paid for a
minimum of 30 days prior to the settlement of the reverse repurchase
agreement or securities lending agreement, in order to supplement
the yield on securities owned and previously paid for or to provide
funds for the immediate payment of a local agency obligation.  Funds
obtained or funds within the pool of an equivalent amount to that
obtained from selling a security to a counterparty by way of a
reverse repurchase agreement or securities lending agreement, on
securities originally purchased subsequent to December 31, 1994,
shall not be used to purchase another security with a maturity longer
than 92 days from the initial settlement date of the reverse
repurchase agreement or securities lending agreement, unless the
reverse repurchase agreement or securities lending agreement includes
a written codicil guaranteeing a minimum earning or spread for the
entire period between the sale of a security using a reverse
repurchase agreement or securities lending agreement and the final
maturity date of the same security.  Reverse repurchase agreements or
securities lending agreements specified in subparagraph (B) of
paragraph (3) may not be entered into unless the percentage
restrictions specified in that subparagraph are met, including the
total of any reverse repurchase agreements or securities lending
agreements specified in subparagraph (A) of paragraph (3).
   (5) Investments in reverse repurchase agreements, securities
lending agreements, or similar investments in which the local agency
sells securities prior to purchase with a simultaneous agreement to
repurchase the security, may only be made upon prior approval of the
governing body of the local agency and shall only be made with
primary dealers of the Federal Reserve Bank of New York.
   (6) (A) "Repurchase agreement" means a purchase of securities by
the local agency pursuant to an agreement by which the counterparty
seller will repurchase the securities on or before a specified date
and for a specified amount and the counterparty will deliver the
underlying securities to the local agency by book-entry, physical
delivery, or by third-party custodial agreement.  The transfer of
underlying securities to the counterparty bank's customer book-entry
account may be used for book-entry delivery.
   (B) "Securities," for purpose of repurchase under this
subdivision, means securities of the same issuer, description, issue
date, and maturity.
   (C) "Reverse repurchase agreement" means a sale of securities by
the local agency pursuant to an agreement by which the local agency
will repurchase the securities on or before a specified date, and
includes other comparable agreements.
   (D) "Securities lending agreement" means an agreement under which
a local agency agrees to transfer securities to a borrower who, in
turn, agrees to provide collateral to the local agency.  During the
term of the agreement, both the securities and the collateral are
held by a third party.  At the conclusion of the agreement, the
securities are transferred back to the local agency in return for the
collateral.
   (E) For purposes of this section, the base value of the local
agency's pool portfolio shall be that dollar amount obtained by
totaling all cash balances placed in the pool by all pool
participants, excluding any amounts obtained through selling
securities by way of reverse repurchase agreements or other similar
borrowing methods.
   (F) For purposes of this section, the spread is the difference
between the cost of funds obtained using the reverse repurchase
agreement or securities lending agreement and the earnings obtained
on the reinvestment of the funds.
   (j) Medium-term notes, defined as all corporate and depository
institution debt securities with a maximum remaining maturity of five
years or less, issued by corporations organized and operating within
the United States or by depository institutions licensed by the
United States or any state and operating within the United States.
Notes eligible for investment under this subdivision shall be rated
"A" or better by a nationally recognized rating service.  Purchases
of medium-term notes shall not include other instruments authorized
by this section and may not exceed 30 percent of the agency's surplus
money which may be invested pursuant to this section.
   (k) (1) Shares of beneficial interest issued by diversified
management companies that invest in the securities and obligations as
authorized by subdivisions (a) to (j), inclusive, or subdivision (l)
or (m) and that comply with the investment restrictions of this
article and Article 1 (commencing with Section 53600).  However,
notwithstanding these restrictions, a counterparty to a reverse
repurchase agreement or securities lending agreement is not required
to be a primary dealer of the Federal Reserve Bank of New York if the
company's board of directors finds that the counterparty presents a
minimal risk of default, and the value of the securities underlying a
repurchase agreement or securities lending agreement may be 100
percent of the sales price if the securities are marked to market
daily.
   (2) Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (15
U.S.C. Sec.  80a-1 and following).
   (3) If investment is in shares issued pursuant to paragraph (1),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to (j), inclusive, or
subdivision (l) or (m) and with assets under management in excess of
five hundred million dollars ($500,000,000).
   (4) If investment is in shares issued pursuant to paragraph (2),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual funds
with assets under management in excess of five hundred million
dollars ($500,000,000).
   (5) The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include any commission that
the companies may charge and shall not exceed 20 percent of the
agency's surplus money that may be invested pursuant to this section.
  However, no more than 10 percent of the agency's surplus funds may
be invested in shares of beneficial interest of any one mutual fund
pursuant to paragraph (1).
   (l) Notes, bonds, or other obligations which are at all times
secured by a valid first priority security interest in securities of
the types listed by Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 for the purpose of
securing local agency deposits.  The securities serving as collateral
shall be placed by delivery or book entry into the custody of a
trust company or the trust department of a bank which is not
affiliated with the issuer of the secured obligation, and the
security interest shall be perfected in accordance with the
requirements of the Uniform Commercial Code or federal regulations
applicable to the types of securities in which the security interest
is granted.
   (m) Any mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond of a maximum of five
years maturity.  Securities eligible for investment under this
subdivision shall be issued by an issuer having an "A" or higher
rating for the issuer's debt as provided by a nationally recognized
rating service and rated in a rating category of "AA" or its
equivalent or better by a nationally recognized rating service.
Purchase of securities authorized by this subdivision may not exceed
20 percent of the agency's surplus money that may be invested
pursuant to this section.
